Economies are classified into three types in an economic system. These are as follows :
(i) Capitalist Economy—It depends upon the market forces of demand and supply. In this type of economy only those consumer goods will be produced that are in demand and those which give profit to the producers.
For example, cars will be produced if they are in demand and also if they can earn profits for the producer.
(ii) Socialist Economy—It is an economic system in which major economic decisions are taken by the government. In this system, the government decides what goods are to be produced in accordance with the needs of society and how goods are to be produced and how they should be distributed.
(iii) Mixed Economy—It is an economic system in which major economic decisions are taken by the Central Government.